Building applications for representation and to locate deals.
Web Scraping.
You will generally need support in areas of AI, Cloud, Database, Web, data processing and coding languages like Python.
You can find very good tech support at local community colleges and data science degree programs.
AI takes time and investment.
Good Sources include Ethan Mollick for a comprehensive overview and Topher Stephenson for CRE specific.
EXAMPLE:
We use Google Alerts to find leads:
ChatGPT Response:
The Jim Henson Company Lot, where the Jim Henson Studios are located, is at:
1416 N La Brea Ave, Hollywood, CA 90028, USA
This historic lot has been home to the studios since 2000, when The Jim Henson Company purchased the site.
ChatGPT Response:
The area around 1416 N La Brea Ave in Hollywood, CA, is a bustling section of Los Angeles with numerous property developers and owners involved in both commercial and residential real estate. Some of the largest and most prominent property developers and real estate owners in the Hollywood area include:
1. **Hudson Pacific Properties**: Known for its significant presence in Hollywood, especially with properties like the Sunset Bronson Studios and other office developments.
2. **Kilroy Realty Corporation**: Has been involved in several development projects, including office and mixed-use spaces in the Hollywood area.
3. **CIM Group**: A major player in urban development, CIM has several properties in Hollywood and throughout Los Angeles, known for developing mixed-use residential and commercial spaces.
4. **Crescent Heights**: A prominent developer known for high-end residential and mixed-use projects, including some developments in the Hollywood vicinity.
5. **Related Companies**: A leading real estate firm with projects across Los Angeles,
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Developing our own tool for using both internet and our own private data. It’s connected to several of our own data sources and ChatGPT. If we see something interesting, we can search for information, find ownership data for the property, and bring up a parcel map.
EXAMPLE:
Finds Owners:
EXAMPLE:
Internal Data. Who owns the most properties in Gardena?
We uploaded our parcel data to ChatGPT for answers: (Actual Owner name removed for privacy)
EXAMPLE:
Proximity Using Lat and Long, what are the 3 closest available properties to the corner Broadway and Rosecrans in Los Angeles? In this case it could not read the spreadsheet but it did read the data when we pasted it into the program. It returned the following: ChatGPT Response: Here are the approximate distances from the intersection of Broadway and Rosecrans in Gardena, CA to the three specified properties, converted to miles:
159 E Rosecrans Ave, Gardena, CA 90248, USA
Distance: Approximately 0.43 miles east of the intersection.
312 E Rosecrans Ave, Gardena, CA 90248, USA
Distance: Approximately 0.53 miles east of the intersection.
332 E Rosecrans Ave, Gardena, CA 90248, USA
Distance: Approximately 0.56 miles east of the intersection
EXAMPLE:
I need addresses for all Independent industrial SIORS so I can send my postcards but all I had was their name, email, company name, and city – No mailing address. I submitted my list through out Chat GPT App, and it returned all mailing addresses.
Leasing conditions throughout Los Angeles have moderated from the rent surges of the Covid period. Nowhere felt the impact from the Supply Chain Crisis more acutely than San Pedro Bay. There were severe space shortages and warehouse rents were increasing daily. The frenzy was magnified by extremely low interest rates that brought a host of investors to purchase sub-institutional grade property and land developments.
Industrial Rental Sales
A mix of price moderation and higher interest rates rate starting in early 2023 brought a cooling to market conditions and we are now in a normally functioning market that favors the tenant. While rents are down from the peak, they are steady on a long-term basis. There is good supply in the South Bay area. You can find reasonable space at $1.50 per foot Gross (including taxes and property insurance). Newer buildings are priced in the range of $2.50 per foot (all-in).Property taxes, due to Prop 13, have an outsized effect on the rent.
Not only has the market normalized, meaning rents have come down, but development activity created a bifurcation between two tiers of space. One is the older tier, with lower rents, smaller footprints, partial obsolescence, and suitable for local tenants. The new tier is “development space” recently completed with superior attributes, large footprints, built for regional sized companies or national freight distributors. The pricing difference between the two tiers is 60%, coincidentally, the same difference between 32’ high and 20’ high. Development spaces, while located in Gardena, are not necessarily intended for organically growing Gardena companies but for larger companies comparing the entire L.A. Basin.
New Development
While current supply is plentiful, the rift between residents and industrial uses will result in a long-term restriction of industrial buildings. Local moratoriums, zoning prohibitions, and statewide measures like California Assembly Bill 98, (Planning and zoning: logistics use: truck routes), enshrines a 500’ and in other cases, a 900’ buffer from “sensitive receptors”. Inother words, intensive industrial need to be away from schools, residences, churches,medical facilities and other places with a high concentration of people.
While Green Zone ordinances in LA County are meant to satisfy residents, it doesn’t address the underlying issues of crime, unsanitary conditions, trash, and homelessness. If the County were to listen to businesses, they would attract better companies and property owners wouldn’t have to solely rely on truckers and warehousers to lease their properties. Green zones and similar restrictions are the result of neglect by County leaders desperate to appease residents without having to do the hard work of making these neighborhoods safe and livable.
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The opportunity in Los Angeles industrial real estate is as great now as ever because activity is constant.
Los Angeles a premier industrial market in the United States. While interest rates, trade flows, taxes and governmental policies will alter your tactics, there are three consistent dynamics which keep deals flowing.
1. Real estate is local. This principle of the property business states the most interested buyers and tenants are closest to the property in ever widening circles. Social Scientists and Urban Geographers call it agglomeration and Los Angeles has a very high ratio of local commercial interaction. When businesses grow, they want to maintain proximity to markets, customers, and employees and will often decide to stay close.
Available Property
2. It’s possible to anticipate where companies are moving from based on historical trends. Companies generally move for more space, less rent and to improve their business.Companies in L. A. County generally follow the same movement patterns, mostly based on the freeway network. As an example, West L.A. companies will move south down the 405 Freeway. South Bay Companies will move to Mid Counties (91 Freeway). Mid Counties will move to the Inland Empire (10 , 60 and 91). There are many other patterns in Southern California that keeps company movement local and predictable. Anticipating where tenants come from keep buildings leased.
4. Aside from geography, there is always robust transactional activity among investors. Except in rare instances of turbulence, properties flow from private hands to investor control. It’s a steady force as new capital follows an old business plan of finding buildings that will provide a reasonable return to their investors. Los Angeles is a crossroads destination with a lot of property still residing in private hands. In addition, Owner/Users will buy when the mortgage payment is equivalent to rent. It’s a positive time to purchase.
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What makes Southern California an industrial powerhouse? Within a 60-minute drive of Downtown Los Angeles, there is approximately 2 Billion square feet of industrial space worth $500 Billion dollars and is almost 15% of the entire industrial space in the U.S.
Most people arrive at LAX which is the largest employment center of aerospace and defense employment in the U.S. SpaceX, TRW, Lockheed Martin, Northrop, BAE, and Raytheon have major facilities along with their suppliers and subcontractors. As a derivative of its engineering and technical resources , El Segundo has a burgeoning “Hard Tech” industry that combines digital technology and physical manufacturing.
Thirty minutes south on the 405 Freeway are the Ports of Long Beach and Los Angeles. Each by themselves has more container volume than any other US port and when combined creates a shipping colossus that supports local warehouses and trade from the South Bay, to Downtown, Mid Counties, Inland Empire and as far as Phoenix and Las Vegas. Approximately 4 million rail cars head to other parts of the U.S. from the six intermodal railyards in the region.
Heading north on the Long Beach Freeway (710), in thirty minutes, you reach Downtown Los Angeles, particularly Commerce and Vernon. These cities were the manufacturing center of the West with large production plants that built cars, tires, glass, food, plastics, furniture and clothing. While many of the largest plants are gone, it left a robust industrial infrastructure with approximately 4,000 companies and 100,000 employees. Today, food, apparel, furniture, metals, machinery and the second largest U.S. wholesale market are major businesses.
Another 20 minutes northeast on the 101 Freeway, you reach Hollywood, home to the international capital of film, television, recording, pre-and-post production employing 200,000 (down from 250,000 at its peak in 2017).
Heading east is the San Gabriel Valley and Inland Empire with 1 Billion square feet of industrial buildings. To the Southeast towards Orange County is Mid Counties. And north is the San Fernando Valley. Each of these submarkets have more industrial space by themselves than most U.S. metros.
Industrial Zones
Klein Commercial Real Estate has been locally headquartered in Gardena for 45 years. Our specialty is selling industrial buildings and representing corporations in their real estate moves.
We are headed to Berlin, Germany this week to discuss using AI in our industrial real estate practice. It’s an area where collaboration with my SIOR colleagues will lead to new horizons!
For industrial spaces 25,000 square feet and greater, there are 150 available locations. Of these 40 are subleases with an average term of 36 months. Rents are declining and property taxes are a substantial differentiator when comparing “total” rent.
More buildings are being offered for sale because of slack tenant demand. Many of these buildings would have been swept up by Private Equity but high interest rates and stricter debt standards have put them on the sideline. More property owners are “testing” the sale market and we expect price reductions to continue.
The best value for most tenants, 100,000 square feet and greater, is second and third generation spaces. Buildings built since the year 2000 are highly functional with the same characteristics as brand-new buildings except for ceiling heights, although many of these 2nd Gen buildings still go to 30’. The market is tighter in the smaller sizes because very little product has been developed at less than 50,000 square feet.
When tenants want to expand their search, we often move South Bay tenants to Santa Fe Springs/Mid Counties or to Inland Empire West. Popular destinations when tenants decide to “Pick up and Go” include Phoenix, Texas, and the Carolinas.
In less than 18 months, the industrial building market has shifted from low vacancy to abundancy. There are now 215 industrial spaces, greater than 50,000 square feet, available in the Greater Los Angeles Basin. This does not include Orange County, Inland Empire, or San Fernando Valley. Only the areas you see on the map (below). About 20% is sublease space.
The best value for most tenants is second and third generation spaces. Many of these buildings built since the year 2000 have the same characteristics as brand-new buildings except for ceiling heights, although many of these 2nd Gen buildings still go to 30’.
36’ high buildings came in around 2023
30’ – 32’ Clear was the norm starting in 2000
24’ Clear started as far back as 1975
Older buildings are equally functional as new buildings for less rent, especially if they have a low tax basis. One exception is if the tenant plans to install interior warehouse installations like mezzanines or specialty racking and automation. In these cases, latest generation buildings have an economic advantage because of height.
Some of the calculations we perform to determine functionality include:
Location and Distance
Docks per 10,000 SF
Building to land ratio
Cubic Capacity and Cost per Cube
Property Taxes/Expenses
Ceiling height
Sublease
To identify the better buildings, we subject all available properties through a macro analysis. This is the best way to identify differences in functionality and cost when there are a lot of choices.
Here is an example:
Let’s say you are in 100,000 square feet in the South Bay and you want to double in size. Some tenants will move completely to put everything under one roof. Other tenants will look for a satellite building as an interim step. Most South Bay companies will look locally and as far as Santa Fe Springs and Mid Counties. Some will want to go as far as IE West. What will you find?
Streamlit Demo View
We model the entire market on the Kleincom Industrial Building Analysis we developed on Streamlit. For this report (100,000 SF to 250,000 SF), we identify 55 choices of which 14 are subleases with terms of at least 3 years (some up to 5). For demonstration purposes, we will leave aside, the additional 80 or so buildings in Inland Empire West (Rancho Cucomonga, Ontario, Chino, and Fontana) that meet the size requirement.
Using Ceiling Height with 24’ as the minimum, we establish the following distribution. For most tenants, 30’ to 32’ is the sweet spot.
All Buildings 100K to 250K
Buildings are dispersed over the entire Los Angeles Region.
Buildings 100k to 250K L.A. Basin
The second factor to sort the choices is the Loading Dock Ratio measuring docks per 10,000 square feet to determine loading efficiency. Any dock ratio greater than 1.5 doors/10,000 square feet is considered highly efficient and closer to 2 docks/10,000 SF is superior.
Docks Per 10k SF
Looking at the top results, it’s not always the newest buildings that are the best choices. You can lease 2nd or 3rd generation buildings for $1.75 to $1.95 per foot (all-in). About half of the buildings are 30’ or greater.
Results Table
Market Area
Size
Rate
Month
Clr
Year
Cubic Ft
Dock Ratio
B:L
Gardena/ Compton
300000
1.6
$480,000
26
1987
7800000
3.33
40%
Carson/Compton
300000
1.53
$459,000
25
1970
7500000
1.84
52%
Carson/Compton
285000
2.2
$627,000
32
2006
9120000
2.24
41%
Carson/Compton
250000
1.51
$377,500
25
1972
6250000
2.17
60%
MidCounties
250000
1.8
$450,000
32
2002
8000000
2.05
59%
Carson/Compton
150000
2.1
$315,000
36
2024
5400000
2.84
60%
Commerce/Vernon
150000
2.6
$390,000
36
2024
5400000
2.11
55%
For some tenant’s subleases may be the right answer because the terms are relatively short, and the financial commitment will be less. Ecommerce tenants and larger Amazon/Temu Sellers are drawn to subleases. The top subleases have exceptional loading and low property taxes. In most cases, landlords will renew when the lease expires.
Best Subleases
City
SF
Yr Blt
HGT
DH
Dock Ratio
Years Remaining
Carson
300000
1973
22
40
1.33
3.69
Industry
225000
1996
30
25
1.11
5.58
Torrance
200000
2000
30
30
1.50
2.69
Torrance
135000
2001
30
25
1.85
3.44
Commerce
125000
1957
22
55
4.40
5.28
Santa Fe Springs
120000
2003
30
30
2.50
3.78
La Mirada
100000
1997
30
20
2.00
2.44
Compton
100000
1981
24
15
1.50
3.02
Experienced tenants will use site plans to decide. There is a preference for a more rectangular building than a square so you can load more trucks simultaneously and divided to sub-customers if necessary. Here’s an example of two buildings of approximately the same size and asking rent. Most tenants would prefer the first building because loading exceeds 2 docks per 10,000 square feet, it has additional trailer parking, and the warehouse can be easily divided into sections while maintaining optimum functionality.
The second site plan is reasonably functional but only has 1 dock per 10,000 square feet, can only be divided in half and is less functional than the first example. For the same cost, most tenants will choose the first building.
With the high cost of land and construction costs, developers need to maximize building coverage to compete and make a profit. In other words, developers are often forced to build the largest possible building on the site while doing their best to keep the building functional. As you can see, some buildings are more functional than others.
Every tenant has different priorities, but most revolve around the same criteria of location and function. At Klein Commercial, we have 40 years of corporate real estate experience locating the best buildings for our clients. Our latest tool, the Kleincom Industrial Building Analysis, will help you make the best choice amongst all the available space on the market today.
There are a lot of industrial buildings available in Los Angeles. It’s a cyclical business and this may be the low point with interest rates projected to decline over 2024. If that’s the case the downturn wasn’t severe. For now, new development will moderate until absorption and lending pick up. Tenants may not see this opportunity for a long time to come. With falling rents, landlords need to close deals fast. If negotiations stall, that tenant will find a cheaper building.
Our analytics show a very healthy supply of buildings between 100,000 square feet and 200,000 square feet. Larger buildings are slightly harder to find because large parcels are rarer in an already developed city. Small spaces are relatively scarce, especially those with power, since there has been very little new construction in that size category for several years. Since rents are greatly influenced by property taxes, we include them when we plot rents. By far the better bargains are with long-term owners, who because of Proposition 13, have significantly lower assessments. Conversely, if you need a new, modern warehouse for high capacity uses, you still need to pay up.
Los Angeles Industrial Real Estate Price per Square Foot over 100k
China Gateway
While Los Angeles has a diverse industrial base, much of the development and leasing activity over the past two decades came directly from Chinese goods entering San Pedro Bay. The warehouse business in Southern California and as far away as Central California, Las Vegas and Phoenix have all grown because of Chinese Imports. Declining imports through Los Angeles unquestionably impacts leasing and rental rates.
In only a short period, the growth story of industrial real estate for the past 20 years started when China was admitted to the World Trade Organization. The driving force of industrial real estate was to accommodate Chinese imports with a vast distribution network of North American warehouses and container yards. The ecommerce boom, surging during the Covid period, was another large reason corporates were taking on large chunks of warehouse space. Corporations today are adjusting their needs due to new policies in targeted industries for computer chips, electric vehicles, national defense and import tariffs… And seeking new suppliers away from Chinese chokepoints.
The import amplification during the Covid period caused an outsized snarl in the supply chain. You may recall as many as 105 container ships were waiting along the Sothern California Coast for a berth. The unprecedented backlog is well over and so are the market distortions that came with the import surge. In addition, because of port delays, resiliency, and labor slowdowns, many importers made the permanent decision to shift warehouses away from Southern California to other US ports in the South and East.
Import Volumes from China into LA 1980-2023
Industrial Policy
Outside of Los Angeles and throughout many parts of the U.S., recent tenant demand has been spurred on by a massive, $2.2 Trillion federal industrial policy included in the CHIPS, IRA, Bipartisan Infrastructure Deal and a national defense industrial strategy. This combination of direct grants, subsidies, domestic content rules and friend-shoring has increased industrial building tenancy and development. Unlike organic development that occurred because of open trade, current US industrial policy is heavily supported by political decisions and lobbying. Local leaders take credit for federal subsidies and state incentives that bring employment. There are many published maps that show investment for computer chip plants, EV vehicle production, batteries, defense plants, and other new factories.
Investing in America
As industrial supply chains adapt, so does the real estate that serves them. Over the past couple of decades, an open market, characterized by Chinese imports, determined the location for industrial building development. This generally meant locations near major container ports received the most interest. In contrast, industrial policy changes trade dynamics by turning to suppliers that will support US national goals. For instance, more manufactured goods are coming through Mexico and creating more traffic for industrial products along the Kansas City Southern Railway (KCS). Monterrey to Houston, Dallas, and Kansas City are new, important links along with many of twin plants across the border towns. Another example is European manufacturers; when they seek to expand in the U.S, Europeans prefer locations in the southeast because of shorter travel times and “right to work” rules.
Kansas City Southern Railway (KCS).
Interest Rates
For Los Angeles real estate and beyond, the rapid rise of interest rates shook 2023 and put both tenants and the investment/development community in a squeeze. While not historically high, the 250-basis point increase was rapid and caused turbulence for those counting on low rates forever (or at least until they sold their building). Even with a forecast of interest rate reductions in 2024, a higher hurdle rate and an increase in the cost of carrying vacant space will provide more balance between landlord and tenant.
Interest Rates – 1970 – 2023
Over the past 15 years, particularly starting in 2008 during the Great Financial Crisis, industrial real estate became financialized as investors searched for advantageous relative returns. It put the traditional owner-user in the position of renting because all the best deals got snapped up by investor/developers. This condition started to moderate in 2023 as normality returned with more opportunities for local business owners to buy their own real estate. Don’t wait too long. There is a new wave of money entering the market. Private wealth managers are seeking alternative investments like industrial real estate. These new buyers will become more apparent as bond yields drop.
Outlook
In our areas of specialty, we see the following:
Our traditional “farm area” for over forty years is in the South Bay, particularly Gardena. This also includes Carson, Compton, Torrance, Dominguez and into the Beach Cities and portions of Long Beach. The zip codes 90061 and 90248 are also included and go by several different names, West Rancho Dominguez, East Gardena, Unincorporated County, and my favorite, “The Strip”.
South Bay industrial property is a core holding of every major industrial REIT, Pension Fund and Insurance Company. It’s notable for legendary aviation, electronics, and defense manufacturing companies; vast warehouses serving San Pedro Bay; proximity to L.A.’s transport infrastructure including the twin ports, LAX, Downtown, downtown markets and a dense freeway network. It’s central to labor, executives, and a skilled and educated workforce. The combination of appreciation and rent growth is among the best in the U.S.
The County Strip
One area that deserves special attention is “The Strip”. Over the past few years because of lax policies and enforcement, local Los Angeles government has allowed RV Campers to park on the streets bringing with it crime, squalor, drug dealing, and prostitution. The area smells of human waste and trash. This condition has caused values to plumet and tenants to flee. Finally, at the end of last year, the County started to offer more permanent housing and campers are being removed from several major corridors. While some streets have returned to sanity, if you take a drive on Redondo Beach Boulevard, Avalon Boulevard, 131st Street or Spring Streets, you will see the awful human condition. Local government leaders say they are making progress and in a hopeful start to the New Year, as the RVs are removed, values and tenants will return. Why? Location, of course.
Filling up empty buildings is a goal for 2024. In contrast to recent previous years, vacant industrial building inventory is growing (map above is 50,000 SF and greater). Many new property owners are facing headwinds from the finance markets, and they are motivated to obtain tenants. As prices settle, more tenants will see the opportunity is now! We use experience, analytics, and long-time relationships so clients are assured of the deals they make. As an independent broker, our background in corporate real estate provides a discernable edge in analysis and acumen.
Los Angeles to Inland Empire
While Los Angeles is the largest industrial building market in the U.S., and when combined with the Inland Empire, Southern California is an industrial behemoth. For many companies, “agglomeration” is the primary reason to be in Greater Los Angeles. However, many businesses continue to seek new horizons to avoid California regulation, politics, and taxation. For those businesses considering leaving California, our SIOR colleagues in the Inland Empire, across the U.S., Canada, Mexico, and Europe have helped many of my customers re-locate and add secondary facilities. In cases when we have the data, we add our analytics and custom program to find “off-market” deals.
Employment in Warehousing, Wholesale and Manufacturing across US MSAs
One area deserving caution is the newer asset class called Industrial Outside Storage (IOS). It’s been a mainstay of industrial property investment particularly near Gateway markets where imports arrive. Many investors have climbed onboard but the IOS market is heavily dependent on truck/container storage and goods arriving from China. Rents are noticeably declining, and vacancies are growing.
